Thu, 29 Jan 2004

"Sustainable" is a religious term. You can substitute
"sacramental" wherever you see it. This is because it does not
withstand the application of rationality. It requires, instead, a
faith which is not borne out by past history.

"Sustainable" is a positive attribute. Sustainable is clearly
better than unsustainable, isn't it? Who would want to engage in any
unsustainable activity? There are, however, activities which are bad
that should not be sustained. Take, for example, sustainable whale
hunting, or sustainable pollution.

Sustainable is good only if the activity is good. The people who
preach sustainability simply assume that the activity will be good
forever, unchanged. This misses out on two possibilities, however.
First, that the goals of the activity may be achieved through
different methods (e.g. unsustainable fishing may be substituted for
by fish farming, and leaving alone native fish populations), or the
activity may be changed from being considered good to being considered
bad.

There was a news report on NCPR
about "sustainable agriculture" this morning. That prompted this
entry even though I didn't hear it (had to walk the dogs). My
assumption is that "agriculture" is considered to be a good thing,
now, forever, and always. Yet just as we consider whale hunting to be
bad, perhaps some day we will consider agriculture to be bad? Maybe
we can grow the food we need hydroponically under grow lights, leaving
the vast bulk of the land to go back to wilderness?

I contend that everyone who thinks "sustainable agriculture" is
good would also think that returning farmland to wilderness is better.

Sun, 11 Jan 2004

Steven Den Beste asserts,
by way of finding, some good -- any good -- in Marxism, the hoary
chestnut that " it is the rise of labor unions in the 19th century,
which led to a rising standard of living for blue collar workers."
Steven is a very good, generous, and kind-hearted person, but in this
case he gives undue credit. The unions are for the
unions.

There is a problem with giving credit to unions. Von Mises, in Human
Action, points out that all costs to a corporation have been
allocated. Wages go to the workers, inputs go to the suppliers,
dividends go to the capitalists, and profits go to the entrepreneurs.
Yes, from a corporation's point of view, dividends and profits are
costs.

Consider why a servant is so expensive. Personal help used to be
so cheap that any middle class person had at least one servant in the
house. The job has not changed and yet almost nobody can afford a
servant anymore. Somehow, the wages that a servant can demand have
risen far out of proportion to their increase in productivity. A
clothes washer, or a dishwasher, or a vacuum cleaner might help a
servant do their job better, but not so much better.

The reason is not because the servant's tasks have changed.
The reason is that all the other jobs a servant might employ
themselves at have changed. Capital makes workers more productive,
and yet capitalists get the same 5% (on a relatively risk-free loan)
that they've always gotten. The rest of the productivity gains have
been allocated to workers.

This, not labor unions, is the reason why workers are so prosperous
in free market economies. Free markets are wonderful for the
common man. Capital earns only a small percentage of the gains of
production, and competition drives out the entrepreneurial profits.
The rest of the gains go to workers, and entrepreneurs are forced to
continue to create new business opportunities.

Now, let's say that workers wanted higher wages than supported by
the increase in productivity. There are only three sources for the
money to pay those increased wages: the customers, the capitalists,
and the entrepreneurs. In each case, the only way they could get more
money is by persuading or coercing the entity to continue with the
deal for less money.

Customers might pay more for the same goods if they can be
persuaded that unions are good for the customer. This has been done
by propagandizing customers. A union might say "Look for the union
label on the garment." Unions say things like "Unions ... the people
who brought you the weekend." Since everybody likes not having to
work on weekends, they pursue this non-sequiter to its illogical
conclusion -- that since people don't have to work on weekends, and
unions don't want union members to work on weekends, that unions have
been responsible for people not working on weekends. No, it doesn't
follow.

Unions can get capitalists to settle for a lower return on their
money by threatening to harm the capital investment. This is most
commonly done by destroying the workplace, sabotaging the workplace,
occupying the workplace (the sit-down strike), or boycotting the
workplace. The latter only works if the union can monopolize the
workforce. In a town with a single large employer, there usually
aren't enough spare laborers to replace the entire workforce.
Replacement laborers are looked down as 'scabs'.

Entrepreneurs are harmed in the same manner.

You can see, therefore, that to the extent that unions have helped
their membership, they have done it through fraud and force. The
results of their efforts have been to discourage customers,
capitalists, and entrepreneurs. Nobody can say how much better-off
people would be had unions not held so many people in their thrall.
The one bright light is that union membership is steadily declining in
all but the public sector. That employment in the public sector is
growing cannot be said to be a good thing, but that's another
subject.

Wed, 07 Jan 2004

I've been writing quite a bit recently because there's been much
stuff, nonsense, and folderol published lately. The most recent I've
seen is this:

Many economists predict that the dollar will continue to
decline for some time, and that the declining dollar will
help boost American industry by making American products
cheaper in countries with strengthening currencies. "In the
short term, it is probably helping the United States," said
Robert Hormats, vice chairman of Goldman Sachs
International.

Remember that money is just a thing. It's
quite possible to have too much cash, particularly if you can't trade
anything for it. The Germans discovered this in the 1930's, when they
turned their currency into toilet paper. If you've traded away too
much cash for goods, people will start to reject your cash. Your
currency gets devalued on the global market. Same as Paris Hilton's
currency has become devalued.

We are currently in that position. We have traded too many dollars
for hard goods, e.g. from China. Now the Chinese have dollars that
they don't know what to do with. They don't want our stuff quite so
badly, and they can't buy things from other countries, because
they don't want dollars either.

Mr. Robert Hormats is describing something that is bad as if it
were good. We don't export because it's good for business. We export
only so that we can import. Importing is the good part, because you
get goods and give away pieces of paper. Exporting is the bad part,
because you have to take back those pieces of paper, and you have to
ship goods.

Sigh. This is all nonsense, nonsense, nonsense. Outsourcing, or
offshoring is very simple to understand, if you but take a moment.
Let's take a typical reaction to offshoring and reduce it to the
absurd:

Indiana Gov. Joseph Kernan in November ordered a state agency to
cancel a $15.2-million contract with an outsourcing firm after
citizens went ballistic at the notion of workers in India upgrading
their state's computers to, of all things, process unemployment
claims of laid-off Hoosiers.

Indianans think that money sent to India somehow disappears, or is
lost to Americans. Let's say that, to stop that from happening,
Indiana hires an on-shore firm. They're still sending their money out
of Indiana. Were they to hire me to upgrade their state's computers,
I must surely admit that I have absolutely no plans to buy anything
from Indiana. Their money is equally as lost to them by spending it on-shore in New
York as it is off-shore in Bangalore.

So let's say that the state government in Indianapolis hires somebody
in Bloomington. Trouble is, that money is lost to the state
government, since the Bloomington company spends it on Michigan
outsourcers.

So they hire somebody in Indianapolis. They, in turn, have outsourced
the work to somebody in Elkhart, Indiana, and that money has no return
path to Indianapolis.

So they give up, and hire an Indianapolis resident to actually work
full-time in the state IS department. Trouble is, nobody currently in
Indianapolis is qualified to do the work. So they move from
Bangalore, New York, Michigan, Bloomington, or Elkhart into
Indianapolis, and no employment for any current Hoosier is created.

I'm running out of imagination, but the eventual end of this process
is that Indiana Gov. Joseph Kernan has to perform every state job
himself, because otherwise, some Indiana dollar might leave Indiana.

Can everyone see the absurdity here? There are no dollars that say
"Indiana" on them. There aren't even any dollars that say "India" on
them. It's too bad that Indians can't stamp the dollars that we pay
them with "India Money". If they did, then we'd start to see India
dollars in circulation inside the US.

The economic fallacy being promulgated by offshoring complainants
is simple to explain but hard to internalize: The dollars that we pay
to Indians don't get magically converted into rupees. They stay as
dollars, and have absolutely no value to Indians unless they are
ultimately spent as dollars back in the good old USA. Perhaps those
dollars take a side trip to France, and then Britain, before coming
back to the USA, but it should be emphasized again and again and
again: we buy other countries products so they can buy our products.

You want to support Americans? Buy other countries products.
You want to support Indianans? Buy New Yorkers products.
You want to support Indianapolisians? Buy Bloomingtoners products.
You want to support Main Street Indianapolis? Buy Elm Street
Indianapolis products.
Buy from whoever provides you with the most value regardless of
their country, state, city, or street of residence.

There should be no confusion about how value is created: when two
parties trade freely, each of them gains. The more that each of them
thinks they got the better of the other, the more value created and
the better the trade. Don't worry so much about who is getting the
value. Worry more that the value created should be as large as
possible.

Let me make this as absolutely simple as possible: nobody, but
nobody refrains from outsourcing their own personal needs. I don't
wash my toilet paper--I buy new, with the full confidence that, if I
continue to do things that other people want, I'll get that money back
as pay.

If there is to be a great hue and cry about offshoring, it should not
be about the lost jobs, but about the new jobs that will be created
once those dollars find their way back home.

Update: John Parmater's response was published on Dave Farber's Interesting
People list. He says much the same as I, but probably more
eloquently.